Ethics

RWP$2-6$ Larry has been the chief financial officer $($CFO$)$ of Maxima Auto Service for the past $10$ years.

The company has reported profits each year it's been in business. However, this year has been a tough

one. Increased competition and the rising costs of labor have reduced the company's profits. On

December $30,$ Larry informs Robert, the company's president and Larry's closest friend for the past $10$

years, that it looks like the company will report a net loss $($total expenses will be greater than total

revenues$)$ of about $$50,000$ this year.

The next day, December $31,$ while Larry is preparing the year$-$end reports, Robert stops by Larry's office

to tell him that an additional $$75,000$ of revenues needs to be reported and that the company can now

report a profit. When Larry asks about the source of the $$75,000,$ Robert tells him, "Earlier in the month

some customers paid for auto services with cash, and with this cash I bought additional assets for the

company. That's why the $$75,000$ never showed up in the bank statement. I just forgot to tell you about

this earlier." When Larry asks for more specifics about these transactions, Robert mumbles, "I can't

recall where I placed the customer sales invoices or the purchase receipts for the assets, but don't

worry; I know they're here somewhere. We've been friends for a lot of years and you can trust me$.$

Now, let's hurry and finish those reports and I'll treat you to dinner tonight at the restaurant of your

choice."

Required:

Understand the reporting effect: What effect does reporting additional revenue have on reported

profit?

Specify the options: If the additional revenue is not reported, do both Robert and Larry potentially

lose benefits?

Identify the impact: Does reporting the additional revenue stregthen the company's financial

appearance to those outside the company?

Make a decision: Should Larry report the additional revenue without source documents?